CAIIB Paper 4 Module B Quiz 1

PMLA focuses on property derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence, including the value of such property where applicable. A large deposit alone is not automatically proceeds of crime; it must be assessed against the statutory definition and facts.

The offence concerns involvement in processes or activities connected with proceeds of crime, including concealment, possession, acquisition, use, or projecting/claiming it as untainted, subject to the Act‘s wording and applicable judicial interpretation. Ordinary banking transactions are not offences by themselves.

Banks and other reporting entities must maintain prescribed records, verify client identity, preserve records for statutory periods, and furnish prescribed information to the Director/competent authority. Confidentiality and lawful disclosure requirements still apply; indiscriminate disclosure is not permitted.

Under the PMLA framework, transaction records are generally required to be maintained for five years from the date of the transaction. Identity and account-file records have separate retention triggers, including the business relationship ending or account closure, as prescribed. Banks should follow the current rules and directions for the specific record category.

Identity and account-file records are generally retained for at least five years after the business relationship has ended or the account has been closed, as prescribed. This is distinct from the five-year period measured from the date of each transaction for transaction records.

Suspicious transaction reporting is based on suspicion and prescribed reporting criteria; a criminal conviction is not a prerequisite. The bank must follow applicable reporting timelines and confidentiality rules and must not ‘tip off‘ the customer. Account restrictions or freezing require the appropriate legal or regulatory basis.

Enhanced due diligence is risk-based and applies in circumstances specified by law, rules, and current RBI KYC directions. It supplements rather than replaces customer identification and ongoing monitoring. Banks should avoid treating a single generic trigger as the only circumstance requiring enhanced scrutiny.

The PMLA framework assigns relevant receipt and enforcement functions to the Director and other designated authorities. Reporting entities must follow the applicable rules and reporting formats; information is not ordinarily routed to unrelated bodies such as municipal authorities or employers.

Ongoing monitoring checks whether transactions are consistent with the bank‘s knowledge of the customer, business, risk profile, and source of funds. Suspicious activity can occur through cash, transfers, digital channels, trade, or other products, so monitoring should be proportionate to risk and cover relevant channels.

Tipping off can undermine detection and investigation and is restricted under the applicable AML framework. A suspicious transaction report does not itself establish guilt or automatically require account closure. Staff should follow internal escalation and lawful customer communication procedures.

Section 13 identifies a promissory note, bill of exchange, or cheque payable either to order or to bearer as a negotiable instrument. Other banking documents may have commercial or evidentiary value but are not included in this statutory trio merely because they are used in banking.

The drawer is the person who draws or makes the cheque. The drawee is the bank directed to pay it, while the payee is the person designated to receive payment. Correctly distinguishing these roles is important for liability and statutory notice questions.

The drawee of a cheque is the bank on which it is drawn and which is directed to pay it. The customer is the drawer, and the payee is the intended recipient. A collecting bank is a separate role and is not automatically the drawee.

A general crossing ordinarily requires payment to be made to a banker, subject to the Act‘s provisions. Crossing is a payment safeguard; it does not cancel the cheque or make it valid indefinitely. Cheque validity and other applicable requirements remain relevant.

An account-payee crossing is a restrictive banking instruction/practice intended to route proceeds to the named payee‘s account. It does not guarantee funds or remove the collecting bank‘s duties. Its effect should be understood with the Act, case law, and applicable banking practice.

Section 87 generally renders an instrument void against a party who did not consent to a material alteration, subject to exceptions such as an alteration made to carry out the parties‘ common intention or an alteration authorized by the Act. Changes to amount, date, or payment terms can be material.

Payment in due course is a statutory concept requiring good faith, absence of negligence, and payment according to the apparent tenor of the instrument to a person in possession under the relevant circumstances. It is not a blanket immunity from all forged or irregular instruments.

Section 131 provides qualified protection to a banker collecting a crossed cheque for a customer, provided the statutory conditions, including good faith and absence of negligence, are met. It is not absolute protection and does not excuse negligent customer due diligence or collection.

Section 138 requires the payee or holder in due course to make a written demand within 30 days of receiving information from the bank regarding return of the cheque unpaid. The remaining statutory steps and timelines, including the drawer‘s payment window, must also be satisfied.

The drawer is generally allowed 15 days from receipt of the demand notice to pay the cheque amount. If payment is not made, the cause of action arises thereafter, and the complaint must be filed within the separate statutory period, subject to the court‘s power to condone delay.